Question

X and Y are partners sharing profits in the ratio of 2 : 1. Their books showed goodwill at ₹ 50,000. Z is admitted with 1/5th share of profits which he acquires equally from X and Y. He brings ₹ 7,50,000 as his capital but is not able to bring in cash his share of goodwill ₹ 40,000. Give Journal entries.

Answer 1

Journal entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	X's Capital A/c   ...Dr.		33,333
	Y's Capital A/c   ...Dr.		16,667
	To Goodwill A/c			50,000
	(Being existing goodwill written off among old partners in their old ratio of 2 : 1)
2.	Bank/Cash A/c   ...Dr.		7,50,000
	To Z's Capital A/c			7,50,000
	(Being capital brought in cash by Z)
3.	Z's Current A/c   ...Dr.		40,000
	To X's Capital A/c			20,000
	To Y's Capital A/c			20,000
	(Being Z's share of goodwill adjusted through his current account in the sacrificing ratio of 1 : 1)

Working note:

1. Sacrificing Ratio

The problem states that Z acquires his 1/5th share equally from X and Y:

X's Sacrifice = `1/2 xx 1/5 = 1/10`

Y's Sacrifice = `1/2 xx 1/5 = 1/10`

Since both partners surrender an equal share, the Sacrificing Ratio of X and Y is 1 : 1.

2. Writing Off Existing Goodwill

The existing book goodwill of ₹ 50,000 must be written off among the old partners in their old profit-sharing ratio (2 : 1):

X's Share to write off = `50,000 xx 2/3 = 33,333`

Y's Share to write off = `50,000 xx 1/3 = 16,667`

3. Adjustment for Z's Goodwill

Z's share of goodwill is ₹ 40,000. Since he cannot bring it in cash, Z's Current Account is debited, and the amount is credited to X and Y in their sacrificing ratio (1 : 1):

X's Share received = `40,000 xx 1/2 = 20,000`

Y's Share received = `40,000 xx 1/2 = 20,000`